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8 Lazy ETF Portfolios December 23, 2010

Filed under: Invest — ilcourtilcourt @ 13:37

I’m a firm believer that investing doesn’t have to be complicated and that it doesn’t have to require a great deal of ongoing effort. In that vein, I’m always drawn to “lazy portfolios.” The following are ETF renditions of some of the most popular lazy portfolios.Most of them could be done just as well using regular Vanguard index funds. The ETF versions simply allow you to implement the portfolios at your brokerage firm of choice, and perhaps reduce costs and taxes somewhat.

1. Allan Roth’s Second Grader Portfolio

  • 60% Vanguard Total Stock Market ETF (VTI)
  • 30% Vanguard FTSE All-World Ex-U.S. ETF (VEU)
  • 10% Vanguard Total Bond Market ETF (BND)

The asset allocation between the funds is clearly intended for a younger, more aggressive investor. But Roth’s idea of keeping it simple applies to everyone. Even for investors close to (or in) retirement, these three ETFs should get the job done.

2. David Swenson’s Ivy League Portfolio

  • 30% Vanguard Total Stock Market ETF (VTI)
  • 5% Vanguard Emerging Mkts ETF (VWO)
  • 15% Vanguard Europe Pacific ETF (VEA)
  • 20% Vanguard REIT ETF (VNQ)
  • 15% Vanguard Intermediate-Term Government Bond ETF (VGIT)
  • 15%  (TIP)

David Swenson, the Chief Investment Officer at Yale University, recommends the above portfolio (a 70/30 stock/bond allocation) in his Unconventional Success. He is a big proponent of equity-oriented allocations for investors with long time horizons.

3. Rick Ferri’s Core Four Portfolio

  • 36% Vanguard Total Stock Market ETF (VTI)
  • 18% Vanguard FTSE All-World Ex-U.S. ETF (VEU)
  • 6% Vanguard REIT ETF (VNQ)
  • 40% Vanguard Total Bond Market ETF (BND)

You only need a few asset classes in your portfolio, and after that there are diminishing returns. The mutual funds you choose to represent those asset classes should be the lowest cost funds you can buy.” –Rick Ferri, CFA on the Bogleheads Forum

4. Bill Schultheis’ Coffeehouse Portfolio

  • 10% Vanguard S&P 500 Index ETF (VOO)
  • 10% Vanguard Value ETF (VTV)
  • 10% Vanguard Small-Cap ETF (VB)
  • 10% Vanguard Small-Cap Value ETF (VBR)
  • 10% Vanguard FTSE All-World Ex-U.S. ETF (VEU)
  • 10% Vanguard REIT ETF (VNQ)
  • 40% Vanguard Total Bond Market ETF (BND)

The title of Bill’s book, “The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life” is spot on. The above portfolio is intended to be rebalanced once per year and otherwise left alone. Sounds good to me.

5. Larry Swedroe’s Big Rocks Portfolio

  • 9% Vanguard S&P 500 Index ETF (VOO)
  • 9% Vanguard Value ETF (VTV)
  • 9% Vanguard Small-Cap ETF (VB)
  • 9% Vanguard Small-Cap Value ETF (VBR)
  • 6% Vanguard REIT ETF (VNQ)
  • 3% Vanguard FTSE All-World Ex-U.S. ETF (VEU)
  • 6% SPDR S&P International Dividend (DWX)
  • 3% Vanguard FTSE AW ex-US Sm-Cap ETF (VSS)
  • 3% WisdomTree International SmallCap Div (DLS)
  • 3% Vanguard Emerging Mkts ETF (VWO)
  • 40% Vanguard Short-Term Bond ETF (BSV)

You’ll note that Swedroe’s portfolio is significantly tilted toward small-cap and value equities (with the reasoning that their higher risk levels should bring higher expected returns). It’s more funds than I’d personally like, but Swedroe makes a valid point that if you’re only rebalancing annually, the additional effort required by having a few more funds in your portfolio is pretty minor.

6. Harry Browne’s Permanent Portfolio

  • 25% Vanguard S&P 500 Index ETF (VOO)
  • 25% Vanguard Long-Term Government Bond ETF (VGLT)
  • 25% Cash (i.e., money market funds)
  • 25% SPDR Gold Trust ETF (GLD)

The idea behind Browne’s Permanent Portfolio is that the four asset classes have sufficiently low correlation that the portfolio should be able to put up modest gains each year under just about any circumstance imaginable.

7. William Bernstein’s No Brainer Portfolio

  • 25% Vanguard S&P 500 Index ETF (VOO)
  • 25% Vanguard Small-Cap ETF (VB)
  • 25% Vanguard FTSE All-World Ex-U.S. ETF (VEU)
  • 25% Vanguard Total Bond Market ETF (BND)

Bernstein, author of The Four Pillars of Investing, suggests the above portfolio for investors with a long time horizon. Note that it’s very similar to the first portfolio mentioned above (Roth’s Second Grader Portfolio), but with a much heavier allocation toward small-cap domestic stocks.

8. Harry Markowitz’s “Father of Modern Portfolio Theory” Portfolio

  • 50% Vanguard Total World Stock ETF (VT)
  • 50% Vanguard Total Bond Market ETF (BND)

Harry Markowitz–Nobel Prize winner and originator of Modern Portfolio Theory–when asked about his personal portfolio once replied, “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier…Instead, I split my contributions 50/50 between bonds and equities.” The above portfolio is a somewhat tongue-in-cheek implementation of Markowitz’s approach.

via 8 Lazy ETF Portfolios.

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